KEY POINTS:
It is the last day of the financial year and to date, the Australian All Ordinaries index is down more than 15 per cent.
It is the worst performance since the 1981-82 financial year, which saw share market losses of just over 32 per cent.
While resources stocks have boomed because of surging commodity prices, most of the market has plunged on debt concerns and profit worries.
Chief economist with AMP Capital in Sydney, Shane Oliver, said conditions are going to remain pretty tough over the next three months.
"We're yet to see the full impact of the credit crunch, higher oil prices, higher interest rates locally," he said.
But he expects a strong rebound in the December quarter and better conditions over the next six to 12 months.
Mr Oliver said not all sectors have faired badly.
"Overall the resources index is up by more than 20 per cent and of course that contrasts with banking and financial stocks which are down about 35 per cent," he said.
Dr Oliver says the magnitude of the slump in superannuation returns this financial year has surprised most analysts.
He says while many people expected returns to slow after several high achieving financial years, the depth of this year's declines have caught everyone off guard.
Dr Oliver said with the bulk of superannuation funds invested in shares, returns have been pounded.
"If you go back a year ago, most commentators thought that super returns would certainly slow down after four very, very strong years but certainly the bulk of them weren't anticipating a slump of this magnitude," he said.
"Of course what has happened is this huge fall in the sharemarket which has dragged down super returns."
However, Dr Oliver said the recent falls have made shares a lot cheaper, which could lure investors back into the market and see things stabilise in six to 12 months' time.
"The Australian share market is trading on a ratio of share prices to forward earnings of around 12 times and the last time we saw anything like that was back in the mid-1990s," he said.
"So shares are very cheap and I think investors will start to look forward to better conditions in 2009."
- RADIO AUSTRALIA
